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Tuesday, February 23, 2010

Exit strategies...

...from the IMF. This is the official "play book" of the Western World...and its presumptuous at best.

Exiting from Fiscal Support and Implementing Long-term Fiscal Consolidation

Noting that the most daunting task is to restore fiscal and debt sustainability, Directors generally agreed that a medium-term adjustment strategy aimed at ultimately reducing debt ratios to pre-crisis levels or below, depending on country circumstances, should be communicated early to reassure markets of policymakers’ commitment. Unwinding discretionary support is only a first step. The bulk of the adjustment will require more difficult reforms, largely on the expenditure side, to improve the structural primary balance on a sustained basis. Directors saw the crisis as an opportunity to advance the needed reforms, including in the areas of age-related entitlements and privatization. They stressed that institutional reforms and reforms with long-term effects on spending and revenues can be undertaken now, insofar as they do not compromise the economic recovery in the short run, and should be complemented by reforms that aim to promote potential growth.

Exiting from Monetary Policies

Directors considered that central banks have the tools to unwind monetary crisis intervention measures, although the methods and sequencing will vary with their circumstances. Central banks have employed a wide range of measures, in many cases unprecedented, resulting in historically low interest rates and substantial changes to their balance sheets. Directors broadly concurred that raising policy interest rates to safeguard price stability does not require the prior unwinding of unconventional measures. They highlighted the importance of preserving central bank independence as crisis measures are unwound, given the potential risk that fiscal adjustment could lead to pressure on some central banks to relax their commitment to price stability, undermining policy credibility.

Exiting from Financial Sector Intervention

Directors supported the view that, to maintain market confidence, financial sector support should be withdrawn gradually and flexibly, based on careful judgment that takes due regard of fiscal costs and moral hazard. This can be facilitated by built-in market incentives and by the judicious use of termination dates. To mitigate future risks, Directors emphasized the need for a new supervisory and regulatory framework, as well as more capital.